Business for Engineers: Reshoring?

It's time for executives and politicians to demonstrate leadership and start planning an orderly return of critical engineering jobs.

If you were around in the early 1980s, you probably remember hearing the term "rightsizing." This referred to the process of reorganizing or restructuring a business by cutting costs, reducing the workforce, or reorganizing.

Later we saw glowing projections that the US -- like all First World countries -- would become an "information worker" utopia. It seemed like you couldn't pick up even the most pedestrian magazine without reading about the blissful work environment that was coming. Hidden behind the nice words and predictions of leisure was the ugly truth of a massive shift in income distribution.

Offshoring promised to be the white-knight savior of many businesses, offering another way to reduce costs while removing ugly jobs from our midst. And it increased profits at a time when many publicly traded companies feared greenmail (purchasing enough shares in a targeted firm to threaten a takeover, thereby forcing it to buy the shares back at a premium).

Then the economic crisis hit. Middle managers found themselves on the street alongside the employees they'd "reduced" from their companies. Recovery for many has been a tough slog through endless applications and disappointment. More recently, there has been a break in the jobs market, and it isn't all "Would you like fries with that?" unskilled jobs.

Starting in 2010, some companies began the reshoring movement. Executives, who actually understood the implications of global wages and the hidden cost of offshoring, suddenly realized that the economic tide had turned. In the UK, some businesses brought manufacturing back home based on the cost of quality that was intrinsic to many of the low-cost manufacturing locations. Rework and product failure rates, combined with the hidden corporate overhead of managing factories in the low-skill countries, led executives to begin bringing the jobs back home.

In the US, the flight of semi-skilled and unskilled jobs happened in a matter of months in many cases. Orderly transitions took a year or less. Now the reverse trend is under way -- jobs are returning to the countries that shipped them elsewhere -- but all is not rosy.

The quick-to-offshore jobs (both unskilled and semi-skilled) are equally quick to repatriate. Training requirements are low, and costs are minimal. But such is not the case for many highly skilled and trained jobs that found their way offshore. For example, 30 years ago, the US had a vibrant and robust consumer electronics design pool. The natural consequence of moving manufacturing offshore has been the transfer of engineering skills offshore. Today, China enjoys a talented and skilled cadre of engineers totally conversant with consumer electronics design. Some consumer electronics design occurs elsewhere in the world, but it seems that the dominant locus of such design is now in China.

Thirty years of a gradual flow of engineering jobs to China (and elsewhere) cannot be easily reversed. What took 30 years to tear down will likely take more than 30 years to rebuild. Furthermore, it may not be possible to recover the totality of skills without governmental incentives.

Why are manufacturing jobs returning? One reason is that the economics of manufacturing labor have reversed. Where once companies could move manufacturing offshore with impunity, two factors now weigh against that trend: a new perspective on the hidden cost of offshoring and the decline of wages in the US (and other countries). For many manufacturing jobs, the differential between onshore and offshore has disappeared. Part of this comes from a better understanding of the corporate overhead associated with managing offshore facilities, coupled with a decline in real wages. In essence, the unit cost per delivered unit of work has normalized. Put another way, onshore laborers are now making Third World wages (though at a higher standard of living).

Perhaps the most troubling and limiting aspect of the reshoring movement in the US has been the lack of foresight from our government. It's an easy decision for businesses to move low-skill jobs around the world to exploit wage differentials, but moving work done by highly educated and skilled people takes time and requires strategic decisions.

The US government has been encouraging the return of manufacturing jobs, but where is the impetus to return engineering jobs to their country of origin? Why is the emphasis on returning manufacturing jobs? Is it just because of the number of unemployed workers? It's time for executives and politicians to demonstrate leadership, stop wholesale shipment of the much vaunted "information worker" jobs offshore, and plan an orderly return of critical engineering jobs. At the very least, we can make sure to develop any new capacity onshore.

If you inspect citizen.org you'll see it's about a universe of things, those that are important way beyond the simple commodity price action cases. Yes, if a nation develops lower cost production domestically then its exports win for a commodity that has a fair market based on comparative domestic advantage. In contrast, our "trade policy" has been one of supressing sovereignty to lower the cost of offshored production, with a trade overlord overriding domestic law of all parties.

Read up, y'all. We swim in an ocean. The color of a particular fish is almost irrelevant (simple "comparative advantage", which is manipulated by policies anyway). The same theme operates with the corrupt H-1B "laws". It's well-established. Most don't care or just don't understand the real rules, or both. This federal regime and its agencies, evolved over several past decades, is the most potent force against prosperity and quality of life that has ever existed for us, and now increasingly for other parts of the world. One can call it emotional. Whatever. It's fact.

Other postings simply observe, to paraphrase, "well, the jobs are coming back due to suppressed domestic wages... the pendulum swings...". As if this is ok or normal. That's sheeple thinking. See, a venal, corrupt system is perfect when it uses the well known human brain's "normalcy bias" in order to divide and conquer the populace, where the pro and con sides simply bicker over features. Ya gotta admit it's a beautiful thing.

@nanonical International Trade and finance is seldom as simplistic as some of the various lobbying groups say. EPI can be a sourc for quality information, as can many other groups. I get concerned when articles unnecessarily load emotuonal content when it isn't required. Take for example the slug "Steel being sold to the United States at below market rates is threatening half a million U.S. steel jobs." That warning folowed the headline "Surging Steel Imports Put Up To Half a Million U.S. Jobs at Risk" The headline is certianly an attention grabber. But is the slug true?

The idea being conveyed is that somehow foreign competitors are unfairly grabbing business by breaking "the market rate." On the face of it, this statement is at best aimed at evoking a negative reaction.

So let's look at market rate - "the usual price in the market." So we have prices that may be at "market rate," above, or below. Since steel is a market, the spot price of steel will fluctuate according to many factors including supply and demand. By most estimates, steel production capacity exceeds demand by about two to one. So, we would expect the market rate to be a declingin price. The rate of change depends on the many players in the market making indivdual decisions.

Becoming more educated about the global economy is always a good thing. But it's critical that one apply critical thinking skills to the subject, and especiually the sources for information.

Our gov't agenda with the WTO and our trade bodies has been undermining our citizenry for decades. Ross Perot warned of the "giant sucking sound" to result from NAFTA in his Presidential campaign in about 1992. He was marginalized and Americans didn't care enough. What he said came true. And we still don't do anything.

I advise you all peruse http://www.citizen.org. Get some education. Stop thinking like serfs, though that's what we've become. In the Middle Ages it took a serf 5/8 of the time we need today to pay for our taxes, to pay his expenses imposed by his Lord.

We tolerate our Trade Policy and "trade" agreements that aren't mainly about trade itself at all. They, in fact, serve to suppress sovereignty and labor globally, not just in the U.S. Most of you will still opt for the blue pill. The red pill means you must awake. That's painful. But then there's the blue pain. Had enough yet?

If one objects to the above, citing "protectionism", my only response can be "ok, now go back to sleep and don't bother me". It's just pointless.

@perl_geek The point for businesses should be to innovate even for, and probably especially for, the low skill jobs so that they can stay in the country of origin. I know that nobody in Canada or the US can compete with a Dominican average salary. I don't begrudge them their need to make an income. But all we have to do is look at decisions of the past to move the "low skilled, low pay" jobs to the country de jeure and we see an inexorable migration of the better paying jobs to those same coutrues as their workforce gains experience. Ceeding control to another workforce just bvecause it's cheaper is often not the answer.

@henry..12 In a labour-intensive but low-skilled trade like basic clothing, "exploit wage differences" pretty much defines management's job. Why struggle to keep people in a low-value-added job if the economy develops opportunities for them to do better?

@perl_geek with the average wage in teh Dominican Republic being less thasn 6000 pesos (about $139) per YEAR, I personallty don't see that choosing to use the DR worker really says much more than "exploit wage differences" to me. The Dominican Republic beats asia hands down for logistics.

Robert Townsend pointed out the hidden difficulties involved with far-flung operations in "Up the Organisation" nearly 50 years ago. Time zone mismatches, shipping delays, cultural difficulties, &c. can all negate simple wage differentials, even big ones.

A case study is Gildan, a Canadian company that makes t-shirts, hoodies, and similar garments; the classic low-skill trades that scurry round the Third World in search of cheap workers. Y

You might expect them to employ Vietnamese, Bangladeshis, or inhabitants of the sweatshop nation du jour. Not so. Canadians would be impossibly expensive, but factories in the Dominican Republic enable them to beat Chinese firms on price, quality, and delivery dates.The DR is relatively close, and in a reasonable time zone relative to Canada.

@Sheetal.Pandey Actually, ALL jobs are always at risk, save for a very few select people (mostly government contractors with security clearance requirements). The notion that any company *must* keep any job in their home country is simply a fallacy. The very same financial rationalization that led to offshoring manufacturing jobs is also at work for skilled engineering jobs.

Actually US companies must keep all design and development jobs in their home country. The companies must bring the engineers they like to US and allow them to work there. Its good both for the company and the engineer. And only routine and maintenance jobs must be ousourced from cost perspective.